The Impact of Government Spending on Demand Pressure

13 Pages Posted: 8 Jul 2005

See all articles by Bob Hills

Bob Hills

Bank of England - International Finance Division

Ryland Thomas

Bank of England - Monetary Analysis

Anthony Yates

Bank of England - Monetary Analysis

Abstract

When assessing the outlook for inflation, the growth of real GDP is commonly used as an indicator of changes in current demand pressures. But as GDP includes the output of the government sector, this approach can in some circumstances be misleading. Government output is not necessarily an informative guide to the impact of government spending on the balance of demand and supply pressures in the marketed sector of the economy. Instead, it may be more informative to consider the quantity of resources that the government absorbs - that is, how much private sector output it buys and how much labor it hires - rather than the quantity of output it produces.

Suggested Citation

Hills, Bob and Thomas, Ryland and Yates, Anthony, The Impact of Government Spending on Demand Pressure. Bank of England Quarterly Bulletin, Summer 2005, Available at SSRN: https://ssrn.com/abstract=753964

Bob Hills

Bank of England - International Finance Division ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Ryland Thomas (Contact Author)

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Anthony Yates

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

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